High-powered panel to decide on RIL plea for higher gas price

New Delhi: Reliance Industries' demand for tripling of KG-D6 gas price from April 1, 2014, will be referred to a high-powered ministerial panel for a decision, a top oil ministry source said on Thursday.

RIL has sought a price equivalent to imported LNG from April 1, 2014, when the current below-market rate of USD 4.205 per million British thermal unit expires.

The Empowered Group of Ministers on natural gas pricing and utilisation will decide on the issue, he said.

EGoM was previously headed by Pranab Mukherjee, who last month resigned as Finance Minister to contest Presidential polls, and the panel is yet to be reconstituted. No new head of the EGoM has yet been announced.

RIL had on June 15 written to the Oil Ministry proposing to price natural gas it produces from the Krishna Godavari basin block in Bay of Bengal at a rate equivalent to price India pays for importing liquefied natural gas (LNG).

The government had in 2007 fixed a price of USD 4.205 per mmBtu for gas from KG-D6 block for first five years of production. KG-D6 fields began production on April 1, 2009 and the current price expires on March 31, 2014.

From April, 2014, RIL wants the gas to be price at import parity just as domestically produced crude oil is priced.

Sources said the firm has submitted the pricing formula or basis a good 21 months before the new rates come into effect, so that the government has ample time to approve it.

This formula is different from the one that was approved in 2007. According to this formula, KG-D6 gas price was capped at crude oil price of USD 60 per barrel, translating into a sale price of USD 4.205 per mmBtu.

KG-D6 gas at USD 60 a barrel oil price, according to the new formula, would be priced at USD 7.862 per mmBtu.

Sources said the formula proposed a true arms length market price as it is the same that the government has approved for import of LNG.

The formula proposed by RIL is the same at which Petronet LNG Ltd, the nation's largest liquefied natural gas importer, buys 7.5 million tonne per annum of LNG from RasGas of Qatar. RasGas charges 12.67 percent of JCC and Petronet pays a further USD 0.26 per mmBtu for shipping the gas in its liquid form (LNG) from Qatar.

KG-D6 output has almost halved to about 31.5 million standard cubic meters per day in the last two years due to unexpected drop in reservoir pressure and increased water and sand ingress in wells. RIL believes fields outside currently producing ones can contribute 30-35 mmscmd to the output.